Acquisitions and Acquisition-Related Contingent Consideration

9 Months Ended

Sep. 27, 2014

Business Combinations [Abstract]

ACQUISITIONS AND ACQUISITION-RELATED CONTINGENT CONSIDERATION

ACQUISITIONS AND ACQUISITION-RELATED CONTINGENT CONSIDERATION

Acquisitions

On June 13, 2014, Cadence acquired Jasper Design Automation, Inc., or Jasper, a privately held provider of formal analysis solutions based in Mountain View, California. The acquired technology complements Cadence’s existing system design and verification platforms. Total cash consideration for Jasper, after taking into account adjustments for certain costs, and cash held by Jasper at closing of $28.7 million, was $139.5 million. Cadence will also make payments to certain employees that are conditioned upon continued employment and the achievement of certain performance metrics over a three-year period.

The following table summarizes the fair value of assets acquired and liabilities assumed in the acquisition of Jasper:

	(In thousands)
Cash and cash equivalents	$	28,678
Property, plant and equipment	520
Other assets	4,362
Acquired intangibles:
Existing technology	68,200
Agreements and relationships	13,600
Tradenames and trademarks	900
In-process technology	10,300
Goodwill	79,792
Total assets acquired	$	206,352
Deferred revenue	(11,900		)
Other liabilities	(6,242		)
Long-term deferred tax liabilities	(20,002		)
Net assets acquired	$	168,208

The allocation of purchase consideration to certain assets and liabilities has not been finalized. Cadence will continue to evaluate certain estimates and assumptions, primarily related to taxes and assumed liabilities, during the measurement period (up to one year from the acquisition date).

During the nine months ended September 27, 2014, Cadence also completed two other business combinations for total cash consideration of $27.5 million, after taking into account cash acquired of $2.1 million. The total purchase consideration was preliminarily allocated to the assets acquired and liabilities assumed based on their respective estimated fair values on the acquisition dates. Cadence recorded a total of $20.3 million of goodwill, $16.9 million of other intangible assets and $8.1 million of net liabilities consisting primarily of long-term deferred income taxes and deferred revenue.

Cadence amortizes acquired intangible assets with definite lives on a straight-line basis over the remaining estimated economic life of the underlying products and technologies. The weighted-average amortization period for definite-lived intangible assets acquired during the nine months ended September 27, 2014 is approximately eight years.

The goodwill related to Cadence’s acquisitions during the nine months ended September 27, 2014 is primarily related to expected synergies from combining operations of the acquired companies with Cadence. Cadence expects that approximately $2.8 million of goodwill related to the acquisitions completed during the nine months ended September 27, 2014 will be deductible for tax purposes.

Results of operations and the estimated fair value of acquired assets and assumed liabilities are recorded in the condensed consolidated financial statements from the date of acquisition. The fair values of acquired intangible assets, including in-process technology and assumed liabilities, were determined using significant inputs that are not observable in the market. For an additional description of these fair value calculations, see Note 7 in the notes to condensed consolidated financial statements.

During the three months ended September 27, 2014 and September 28, 2013, Cadence did not incur any transaction costs associated with acquisitions. During the nine months ended September 27, 2014 and September 28, 2013, Cadence incurred transaction costs associated with acquisitions of $3.7 million and $8.2 million, respectively. These costs consisted of professional fees and administrative costs and were expensed as incurred in Cadence’s condensed consolidated income statements.

Acquisition-Related Contingent Consideration

Cadence may be obligated to make cash payments in connection with its business combinations and asset acquisitions completed in prior fiscal years, subject to the satisfaction of future financial measures associated with the acquired technology. If performance is such that these payments are fully achieved, Cadence will be obligated to pay up to an aggregate of $10.0 million over the next 19 months. Of the $10.0 million, up to $8.3 million would be recorded as operating expenses in the condensed consolidated income statements.